The Journal. - Why Buying Paramount Global Won't Be Easy

Episode Date: February 1, 2024

Paramount Global is a media titan and lately potential buyers have been circling, hoping to get some of its parts. But as WSJ’s Jessica Toonkel explains, there’s a problem. The company’s owner is only interested in selling the whole thing. Further Reading: -Allen Media Group Makes $14.3 Billion Offer for Paramount Global  -Skydance Backers Explore All-Cash Deal To Gain Control of Paramount  -Warner and Paramount CEOs Discussed Possible Merger of Companies  Learn more about your ad choices. Visit megaphone.fm/adchoices

Paramount Global is a massive conglomerate. The company owns a famous movie studio that's behind hits like Mean Girls and the mob classic The Godfather. I'm going to make him an offer he can't refuse. It owns cable networks like BET, MTV, and Comedy Central, which are known for iconic programming. And it owns a big broadcast network, CBS,

where people tune in to watch football. CBS Sports welcomes you to the following presentation of the National Football League. But even with all these big names, as a business, Paramount Global isn't doing well. I would say that Paramount, like its competitors, is struggling. So is Paramount Global kind of like a beautiful house that like has a flood in the basement? Oh, I think that's an excellent analogy. Yes, there's definitely a few leaks in this house. That's our colleague Jessica Tunkel.

And she says that even though the Paramount house might need some repairs, people have been knocking on the front door, asking if it's for sale. I would say that there's a flood in the basement. The boiler needs to be replaced. It's really expensive to replace that boiler. I could keep going with these metaphors. But so why would anybody want it then? Because if you think you can get it for cheap enough,

then it could be a good deal. Over the past few months, there have been three different buyers who've seen a good deal in Paramount Global. But each buyer is only interested in some of the company's pieces, like the movie studio or the CBS network. But the person selling the company doesn't want to break off little pieces. They want someone to buy the whole leaky thing. Welcome to The Journal, our show about

money, business, and power. I'm Ryan Knudson. It's Thursday, February 1st. Coming up on the show, why buying Paramount Global won't be easy. Introducing TD Insurance for Business with customized coverage options for your business. Because at TD Insurance, we understand that your business is unique, so your business insurance should be too. Contact a licensed TD Insurance advisor to learn more. What are the obstacles right now for buying Paramount Global or getting your hands on these individual pieces? The biggest obstacle is that Sherry Redstone,

who is the controlling shareholder of Paramount, does not want to break the company apart. Sherry Redstone is a 69-year-old media mogul. Her company, National Amusements, controls 77% of Paramount Global's voting shares. Sherry Redstone has been part of the business for years, starting back when her father, Sumner Redstone, was in charge.

He died in 2020. They had a bit of a tumultuous relationship. Sumner Redstone was was in charge. He died in 2020. They had a bit of a tumultuous relationship. Sumner Redstone was not an easy man. Towards the end of his life, many people wanted to control Paramount, including some ex-lovers of Sumner's and several former executives of both CBS and Viacom, all of which went to court

and Sherry had to battle to take control of this company. And she won. Over the years, various suitors have been interested in pieces of Paramount Global, but Sherry Redstone has always turned them down.

Why doesn't Sherry Redstone want to sell the company off in pieces? This is her baby. You know, she fought really hard to take control of this company. And it was her father's company. And the family has been involved with it forever. And I think the last thing she would want to see is it get broken up. And I think she certainly doesn't want to be the one to make that decision. Here she is in an interview back in 2011. It takes a lot to get us to sell anything.

We love these businesses and we plan to be in them for a long time into the future. But the business Sherry Redstone fought so hard to control and hang on to is kind of a mixed bag these days. Some of its companies are doing well, and others not so well. So Paramount Global owns the Paramount Studio, the crown jewel, as well as CBS, the broadcast station, which is very valuable because that's where a lot of people go to watch football. And then they own a lot of cable networks like Comedy Central, VH1, MTV, Nickelodeon.

And those cable networks are kind of the rub because those are just declining in value with every month that passes because less people have cable subscriptions. The advertising market is not great. People don't know if it'll ever come back to where it was. And so that's the piece of the business that's really struggling, kind of an overhang over the whole thing. And what about Paramount+, the streaming service that the company has? Of course. How could I forget Paramount+. So Paramount+, is their streaming service, which they launched a few years ago. And that is important strategically, but it doesn't make money.

Lately, according to Jessica's reporting, Redstone has had a change of heart, and she might be interested in selling after all. Sherry's ready to move on. She doesn't want to break up the company, but she has other interests too. I mean, she's very involved in the Israel-Palestine situation. She wants to spend more time focused on that.

She has grandkids. Like, I think she's tired. And despite the company's problems, there are still suitors lining up to try and buy it. I think there are people who believe that this company has just been underinvested in. Like, they've not been able to put more money into it and under different hands with more resources,

they could turn it around. Over the past few months, three suitors have expressed interest. One of the suitors is Warner Brothers Discovery. Last year, the company's CEO, David Zaslav, reached out about a possible merger. Warner Brothers Discovery is already huge. It owns cable networks like CNN and TNT, as well as a possible merger. Warner Bros. Discovery is already huge. It owns cable networks like CNN and TNT, as well as a major studio. I think Zaslav would have been interested

in buying Paramount really to get to CBS. I think he would love to have those NFL rights and be able to have football games. It's something he realizes they don't have. It would help Max if he could put some football games on It's something he realizes they don't have. It would help Max if he could put some football games on the streaming service, and it would just, you know, fill out their portfolio. But Warner Brothers also has a ton of debt, and they'd have to take on billions more in order to acquire Paramount. And merging two of Hollywood's biggest studios might be hard to get past regulators.

So when news leaked that Warner Brothers was interested in buying Paramount, investors were not enthused. The reaction was not good. This Warner stock tanked. Investors clearly didn't like it. But the other issue with that deal is that under this administration, it would take a very long time to get regulatory approval, if it even did get regulatory approval. So after the blowback, the potential merger

looked like it was dead in the water. After the break, the other two suitors interested in Paramount. A 13% cosmopolitan cocktail. You grab a can and take a sip. Suddenly you're on a fresh adventure, becoming the hero of your own night. Unapologetically full-flavored cocktails with a 13% punch. Dare to make your own luck. Must be legal drinking age. Please enjoy responsibly. Available at the LCBO. DQ presents...

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Hurry in to get this flavor before the DQ freezer closes. DQ. Happy tastes good. The second suitor going after Paramount is a man named David Ellison. So David Ellison kind of came on the scene just a few years ago. He's young, right? He's 41 years old. He is the son of multi-billionaire Larry Ellison, the co-founder of Oracle. And I think a lot of people thought that he was just like a rich kid

who was going to try to make it in Hollywood and like Hollywood was just going to eat him up. But that's not what happened. Ellison's production company, Skydance, has been successful. So Skydance is behind a lot of very popular franchises, which they've partnered with Paramount on, such as Top Gun, Maverick, Mission Impossible. So while a lot of these independent new studios focus more on kind of artsy independent fare, trying to get awards, he's really focused on commercial successes, and it's actually done quite well for himself by doing that.

Jessica says the reason Ellison seems to want Paramount Global is for its movie studio. I think he really wants the studio because these two studios, Skydance and Paramount, have partnered on all these different movies and franchises, so it really would make a lot of sense for him to own the studio. I don't know what he would do with all those cable networks.

I don't know what anyone would do with all those cable networks, frankly. What's Ellison's relationship like with Sherry Redstone? David and Sherry, as we understand it, started having conversations late last year. And they've known each other for a while. Like, yes, I'm sure they have like some family legacy conversations about all of that, how to survive in a family business. She's like, here's how you can make it as the child of a rich

baron. Basically, right. I understand your pain with being the child of a very successful executive, rich person. Then, a few weeks after news of Ellison's interest in Paramount went public, the third suitor emerged, self-made media mogul Byron Allen. Earlier this week, he made an official offer to buy Paramount Global for $14 billion.

So can you introduce us to Byron Allen? So Byron Allen is a media entrepreneur. He owns a host of local TV networks and owns The Weather Channel. That's probably what he's most known for. I started my company from my dining room table 30 years ago. Here's Allen at an event last year. 30 years later, that fire is still in my belly.

I still run scared, and I'm still running after that vision of building the world's biggest media company. Unlike Warner Brothers Discovery, which seems to want the company for CBS, and unlike Ellison, who seems to want it for the movie studio, one of the main things Byron Allen wants is the cable networks. So I think Byron wants to buy Paramount primarily because he wants to own the cable networks

and the broadcast, CBS broadcast network. And the CBS broadcast network is a no-brainer for the company, or really many companies. The cable networks I'm a little more flummoxed about because I don't know what he can do to fix those networks that hasn't been tried before. I don't know what the magic formula is to save the cable networks, but there are people who make a lot more money and are a lot smarter than me who could figure that out. But he already owns a bunch of cable networks, so maybe he could combine them

and find some way to, you know, cut costs or streamline the operations? Sure. I'm sure that there's some synergies that he could achieve, but I'm not sure how far that gets you in the end when it's a melting iceberg. And even though Alan is looking to buy the whole company from Redstone, he might not keep it whole for very long.

According to our sources, he has a company lined up who's willing to pay $10 billion for the studio, which, by the way, is not an insane number when I check that with other people. I don't know who this mysterious company is, though. Ellison has similar plans. Jessica's sources say he'd also try to sell off parts of the business he doesn't want. But both Alan and Ellison have a problem. There are big questions about whether either of them have enough money to pull off a deal.

Alan is looking for partners and loans, while Ellison is looking closer to home. Does David Ellison have enough money? Larry Ellison has enough money to buy National Business. Dad has enough money. Exactly. So, I mean, that's also why I can't say, like, I know David Ellison wants to buy Paramount. I'm not 100% sure Larry Ellison wants to do this deal. And he has to guarantee the deal in some way for it to happen. Even with all these suitors, Paramount's stock is down almost 40% over the past year. And it's unclear whether Redstone can get a better deal. What does that say about Paramount Global and the situation that Sherry Redstone is in? I think that for a really long time,

Sherry has been holding out for more money. The stock will rebound. It'll get better. It's got to get better. Like, let's wait till after the strikes. Before that, let's wait till after COVID. It hasn't gotten better. And so I think she's realized that it's time to sell. Is anyone here making Sherry Redstone an offer that she can't refuse? Not yet. I don't think there's an offer yet she can't refuse. Again, like on paper, Byron Allen's offer is pretty attractive. But again, we need to know where, show me the money. It's from another movie,

which I don't think is from Paramount. Yeah. Yeah. Jerry Maguire, classic. What do you think happens if Redstone isn't able to find a buyer? So if this deal doesn't happen, I don't know what Paramount does. I think that they need a buyer. So if this deal doesn't happen, I really think that Sherry Redston will probably have to think about selling her stake, potentially to a private equity firm, or potentially breaking up the company. That's all for today. Thursday, February 1st. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Joe Flint.

Thanks for listening. See you tomorrow.